Run-down South End housing at center of high-stakes lawsuit from billionaire’s firm

By | June 6, 2017 at 3:08 AM EDT - Updated August 12 at 8:06 AM

CHARLOTTE, NC (Matt Kaminer and Ely Portillo/The Charlotte Observer) - A Charlotte billionaire is seeking to reclaim control of a dilapidated housing development in South End from a second real estate firm, the latest legal twist in a saga that's left hundreds of low-income residents in the dark.

People who live in Brookhill Village, at South Tryon Street and Remount Road, are watching anxiously as workers tear down parts of the 67-year-old development all around them. Although many of the buildings are in bad shape – with peeling paint, broken windows and reports of cockroach infestations – rents of about $350 to $515 per month are far below anywhere else in the area. Many residents don't know where else they'll be able to afford to move.

"I think the general mood is this real sense of uncertainty about what is going to happen," said the Rev. Ray McKinnon, pastor of South Tryon Community United Methodist Church, an outreach mission with many members from Brookhill Village.

"Rumors abound. Some folks think that they're going to be kicked out, and so they're trying to figure out where else they could go, and then there are some folks who think that (the owners) will keep letting it deteriorate but then continue to charge rent.

"I don't think people know what to expect," McKinnon added. More than 200 units are rented at the property, according to an April court filing. McKinnon said more than 500 people live there.

Just steps away from Brookhill Village, thousands of luxury apartments and a dozen new breweries have reshaped South End, transforming it from a fading industrial corridor to the center of Charlotte's urban resurgence. Upscale townhouses and at least three new apartment complexes are planned across the street. Three blocks away, at Remount Road and South Boulevard, the new Solis Southline apartments are open, with studio apartments renting for more than $1,300.

So why hasn't Brookhill Village been redeveloped, even as thousands of new, high-end apartments rise nearby? Part of the reason is a complicated ownership structure. The land is owned by a company called Brookhill Land, which is affiliated with C.D. Spangler, a Charlotte businessman with a Forbes-estimated net worth of $4.1 billion. His company developed Brookhill Village starting in 1950, decades before the uptown skyscrapers now visible from the site were built.

But while the Spangler-affiliated company owns the land, a second, entirely separate firm called Brookhill Village Two, LLC, owns the buildings. Brookhill Village Two, affiliated with Charlotte developer Greg Pappanastos, controls the development through a ground lease that runs through 2049.

Spangler's firm is suing Brookhill Village Two to terminate that ground lease, alleging Brookhill Village Two has let the community fall into such disrepair that it's in default of the conditions of its lease – "leaving many structures with obvious decay and unsatisfactory living conditions," according to the lawsuit. Brookhill Village Two has filed counterclaims, charging that the Spangler company's allegations are baseless and that they've already caused redevelopment opportunities to fall through.

The case is in Superior Court, where it's set to play out for at least the next several months before a possible trial or settlement.

It's the second time in less than a year that the future of Brookhill Village – and what will take its place – is in serious doubt. In September, the federal government started proceedings to seize the 36-acre property, alleging a history of drug violations and violent crime. They agreed to settle the case in December and stop those proceedings after the owner agreed to demolish or "substantially" improve the one-story apartments on the property, along with beefing up screening of tenants and having more on-site patrols to discourage crime.

Terry Shook, a Charlotte developer and architect affiliated with the development group, said earlier this year that the developers were exploring options to redevelop the site with a mixed-income project that would preserve some affordable housing.

Lawyers for Brookhill Village Two, the developer-led firm, said they couldn't comment comment on the case.

"Brookhill Village Two, LLC continues to work to find a successful path to redevelopment of the property that benefits all parties, including the existing residents and future citizens who deserve quality affordable housing," said William Robinson, of Robinson Elliott and Smith.

Reached Monday morning, Spangler declined to comment.

'The Bottoms'

When McKinnon took over as pastor of South Tryon Community United Methodist Church, next to Brookhill Village, he was reminded of a television show he grew up watching, "In the Heat of the Night."

"In the show, a lot of the poor people lived in this area called 'The Bottoms,' and the houses in The Bottoms all looked like little shacks," McKinnon said. "That's what it felt like seeing Brookhill."

One day, during a meeting in his office, he looked up and noticed that a Brookhill Village house just outside the window was burning.

"Where am I right now?" he thought.

McKinnon, who's also a commissioner on the Charlotte Housing Authority, was asked to come to South Tryon to carry out the church's mission of assisting the area's low-income residents.

"We've been working with Terry (Shook) and his group, trying to figure out what some of the options and possibilities are for this community," McKinnon said. "A lot of people want to talk about what doesn't work and how complicated (the ownership structure) is, but our families in Brookhill will be displaced unless we find a solution that they can afford, because this is some of the last truly affordable housing in Charlotte."

Day by day, the homes disappear as demolition progresses. Construction workers crowded around a house in disrepair a few weeks ago when the Observer visited the site. Aiya Jaroush, Cecilla Brunell and Jeff Pegg set up chairs on the porch of the house they share, paint peeling around them.

"There are bugs," Jaroush, who has lived in Charlotte for nine years, said. "The owner said the house was bombed four times, and it's still horrible. We're all in the process of looking for a different place to go because it's that bad."

Yatta Clark moved to Brookhill two months ago from Aztec Apartments on Eastway Drive. She heard that some of the village would be torn down and was hoping to move into whatever complex was built in its place. With no clear solution on the horizon, Clark, who finds her monthly payment "feasible," is doing her best to be patient.

"I'm waiting for them to do something different," Clark said, "and I'm going to give them some time to do what they do."

Douglas Rodriguez, a cook at Captain D's seafood restaurant, moved to Brookhill Village last year with his ill father. He, too, is hoping to move out of the village soon, but isn't sure where he'll be able to afford to go.

"The rent's not too bad," Rodriguez said. He pointed to his left toward a desolate row of houses. "But just look at them. Look at how they look."

'An open drug market'

When Brookhill Village was developed in 1950, the site was a patch of vacant land miles from Charlotte's business district. The Spangler-affiliated entity that developed the 100-plus single-story dwellings for blue-collar renters did so through a ground lease. That meant they controlled the buildings but didn't own the ground under them.

Brookhill Village Two bought that ground lease for $3.3 million in 2008, real estate records show.

"The economic and financial assumptions of (Brookhill Village Two) in purchasing the leasehold proved incorrect, and BV2 has, for that reason, failed to implement its plans for development," the lawsuit by the Spangler-affiliated company alleges. "The property has fallen into substantial and ongoing disrepair...BV2 was indifferent to the deterioration of the property."

The lawsuit alleges that the property began to be referred to as an "open drug market" by local law enforcement officers, and Charlotte Code Enforcement deemed 30 separate residences uninhabitable from 2014 to 2016. Violations of the housing code included the need for new roofs, a missing door, broken windows, decayed ceilings and bedbug and cockroach infestations, according to the lawsuit.

In response, Brookhill Village Two denied the bulk of the lawsuit's allegations. The company asserts in its legal filings that it is not in default under the conditions of its lease, and that many flaws at the property have been corrected.

The notices of default were "unfounded and baseless claims," attorneys for Brookhill Village Two wrote. "The Plaintiff's Notices and demands were contrived, manufactured and a mere pretext for its desire to terminate the Lease."

Brookhill Village Two has lost "several redevelopment opportunities" because of the ongoing legal disputes, the developer-led company says. In its counterclaim, Brookhill Village Two is seeking damages of more than $25,000, according to legal filings.

Meanwhile the tenants, who continue to watch the demolition around them, risk having nowhere affordable to go if Brookhill Village disappears, said McKinnon, the pastor.

"For a lot of these families, this is the last resort for housing," he said. "It's either this, or becoming homeless."